Weekly Property Round Up

Written on 16 October 2015

This week’s property blog is brought to you by our Tax Director, Ben Lee. Featuring words of warning from Savills and the ICAEW, followed by a seasonal sale from Tescos, where everything must go.

Market Stagnation next year, warns Savills

At WSM we have heard whispers and rumours from clients and colleagues in the property world. Developers have started to notice the effect of the reformed stamp duty on failed sales on high end property in the capital, and we have certainly heard from our overseas investors that London is currently ‘just too expensive’. Savills have now forecast that there will be no growth in price next year, with only a 2% increase in 2017.

Expanding outside the central London area, their forecast includes what they consider to be the five central areas. This includes central London, plus Marylebone and Notting Hill, Hammersmith to Ealing, Fulham to Battersea down to Richmond and Wimbledon, Islington down to Canary Wharf, and St John’s Wood up to Highgate.

Savills says prime central London values are currently showing annual price falls of 4.6%, hoping to have absorbed the impact of higher stamp duty charges by the end of 2015, closing this year 2% down before a bleak 2016 year of stunted growth.

With tighter lending criteria imposing on purchasers, perhaps the greater London area will follow the capital’s example of stabilisation, to prevent any risk of prices increasing to an unsustainable level, however delayed this effect may be.

ICAEW attack the new tax on buy-to-lets

The Institute for Chartered Accounts in England and Wales has released its opinions on the Chancellor’s new tax on buy-to-let properties, describing the regime as ‘unfair and unreasonable’.

The new tax, being phased in from 2017-2020, has brought with it concerns that property investment is now only affordable for the super rich, excluding middle-class savers adding one or two buy-to-let properties to their pensions and other portfolios. George Osborne’s intention in the Summer Budget was to ‘create a more and level playing field’ between property investors and owner-occupiers, who do not enjoy tax relief on interest payments.

Real losses have the potential of become taxable profits, once the interest restriction is introduced, and the ICAEW pointed out that some landlords would find themselves being pushed from the basic rate bracket into the higher rate, even though their real income had not increased.

The ICAEW says it could exacerbate the property crisis and make it more difficult for first-time buyers.

“The interest relief restriction will favour cash buyers who want to buy to let and may increase the competition even more at the lower end of the property market, thereby increasing prices and hindering first-time buyers.”

Autumn Sale at Tesco

It’s that time of year when the shelves are beginning to stock with advent calendars and yule logs as we are head into the run up to Christmas. Not waiting for the Christmas sales however, Tesco has sold off 14 sites to residential developers for a total of £250million pounds

Losing out to low-value competitors Aldi and Lidl, Tesco’s credit rating plummeted to ‘junk’ status by Moody’s and S&P in January. In a bid to strengthen its balance sheet, the 14 sites situated around London with the exception of a site in Bath, are being sold to Meyer Bergman.

Tesco’s group profits fell 55% in the six months to the end of August, earnings falling to £166m from £543m a year earlier. Tesco had previously bought the sites, including land on Fulham High Street, Hounslow, Tolworth and Epsom, with the intention of developing but facing an ever increasing price war announced earlier this year that they will offload 50 projects, many of which are currently derelict. It is also planning on closing 43 loss-making stores, halting plans to open a further 49 stores some of which have only recently been built.